How SMEs can benefit from outsourcing

Refusing to relinquish control of at least some tasks can be a surefire route to burnout for SMEs. James Hyett of Bentleys shares tips and insights on deciding what, when and how much to outsource.

It is not unusual for SME owners to wear multiple hats within their businesses, from bookkeeper to HR manager, and all points in between. At the same time, owners are often the most time-poor, struggling to fit everything that needs to be done into the hours available.

The problem can be compounded if a business owner becomes caught up in many non-core but essential functions of the business, which limits time available to focus on the core business – growth, innovation and improvement.

In doing so, many SME owners fail to recognise the value of their own time as a key asset to business growth and development.

Most SME owners will be familiar with the following conundrum: your business needs a diverse set of skills to operate smoothly and remain competitive. Further, it’s likely that the smaller your business, the smaller the pool of skills available to you, which leads many to have a hand in all business functions, regardless of their importance or relevance to the core business.

That’s why learning what activities can and should be outsourced is key for any SME owner who wants to be set up for success, irrespective of business size.

The concept is not complex. Efficient outcomes are achieved by matching tasks to the individual with the skills most suited to performing the task.

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If an SME owner has developed a product over many years, that owner’s time is likely to be best applied to continuing product development, and marketing or selling that product. They may not gain significant benefits from spending their time wrestling with an accounting system, tackling complex taxation concepts or designing a website, for example. They need to leverage from specialists to achieve efficient outcomes in these areas.

To illustrate this, recent research conducted by Bentleys looked into which essential tasks that SMEs carry out are held in-house.

The results of the The Voice of Australian Business survey showed that activities held in-house include active daily management of the business (57 per cent), followed closely by administrative tasks (55 per cent), then bookkeeping (41 per cent), human resources (40 per cent), marketing (39 per cent), accounting (31 per cent) and IT support (30 per cent).

Objective analysis of this breakdown suggests that some of the tasks being held onto could in fact be outsourced. When we then look more closely and see the correlation between these in-house and those that are most time-consuming, the case for judicious outsourcing becomes even stronger.

For example, of the tasks rated the most time-consuming, active daily management of the business remained highest (48 per cent), followed by accounting (35 per cent), marketing (23 per cent), bookkeeping (21 per cent), administration (18 per cent), IT support (17 per cent) and human resources (16 per cent).

It’s important to note that many business owners will see their key role being in the active day-to-day management of the business. However, the scope of management tasks can easily become very broad and time-consuming, meaning that the business owners may not be effectively deploying their intimate knowledge of the business for the maximum benefit of the business.

Care needs to be taken to ensure the tasks performed by business owners are weighted towards their strengths – the aim is to play to their strengths to maximise the effect they can bring to the business.

The benefits of outsourcing

Outsourcing provides business owners the opportunity to lend their focus to the business functions that bring in the most value, and which is best in line with their skill set. It also provides SME owners with a pool of talent which specialises in a function, as opposed to an individual who may be limited in both time and experience.

In addition, outsourcing manual tasks also helps spare your key employees from the “noise” of the business – the incidentals and support functions that may otherwise distract them from the business functions in their remit.

This in turn assists with employee retention rates, as employees are free to reap the benefits of focusing on what they are best suited to and what they are passionate about.

Keeping your eye on the prize

Our client had a regional headquarters in Hong Kong, with a small number of highly paid senior management based in Australia. Through outsourcing the entire accounting and compliance function, the client was able to ensure that their senior management was in the market selling their product and establishing their Australian footprint while also ensuring their accounting and compliance matters were effectively performed.

Management’s detailed involvement in the accounting and compliance matters would have reduced the ability to achieve sales outcomes.

In this case, the accounting and compliance needs of the business were too diverse to be performed through the skill set of one finance professional, and even if a person was to be found with the necessary skills, they would have found themselves doing both highly technical work as well and tedious data entry.

This was an impractical solution, which was why outsourcing was essential.

Potential barriers to outsourcing

Unsurprisingly, cost is cited as a major perceived barrier to outsourcing for SMEs. For those concerned that they lack the budget required, it is important to conduct a cost/benefit analysis. While the costs and risk associated may at first seem daunting, a close examination will show benefits come out on top.

It may seem an easier and more cost-effective option to hire a full-time employee to take on non-core or outsourceable tasks, but you should make sure you consider all the additional potential costs and downsides before making a decision.

For example, when you add to the base salary other employment costs, such as sick/personal leave and superannuation, you may well see that these outweigh the costs associated with finding the right external supplier.

Add to that the fact that finding individuals well-versed in the range of skills required (from accounting to IT, for example) is very difficult, and you have another potential point in favour of dividing tasks among specialist external suppliers. Further, assigning all the more manual or basic tasks to a single employee poses a high risk of boredom and burnout – which leaves you with high costs of turnover and recruitment.

Where to start

The best place to start when considering outsourcing is with close internal reflection about your business, what is core to growth, innovation and improvement, and even more importantly, what tasks are not best suited to your own skill set. In this way, you can prioritise the essential tasks that you, as the business owner, should be involved in.

As part of this process, you should challenge yourself as to what you think you can do versus what you will actually do in practice, and where your limits lie.

Doing your due diligence on your potential suppliers is also vital. Typically, outsourced tasks are cost rather than profit centres. That makes it especially important to think beyond the cheapest option and think about value.

Regularly reviewing your suppliers and their capabilities to ensure they are remaining up-to-date and continue to deliver value is important.

Spending time networking among like-minded individuals can also be very helpful. Opening the lines of communication among your peers has many benefits, extending beyond outsourcing.

Lastly, you should test any proposed approach to outsourcing with your trusted advisers in different disciplines, such as lawyers, accountants and financiers, to have an open discussion and share ideas at all stages.

Getting an external expert perspective on your options can give focus on your decision-making, deliver tremendous value to your business and save you from the dreaded burnout.